(Real) yields on the 20-year TIPS turned negative in April. Yields on conventional Treasuries were arguably already there. Following the May rally, stocks were priced for negative five-year returns (IMO, of course) in almost any economic scenario.

As frequently discussed here, QE can only do so much. It can’t reinvigorate an economy and it isn’t a substitute for sensible Federal fiscal policy.

]]>By: QCIChttp://blogs.reuters.com/felix-salmon/2013/06/24/the-feds-bad-timing/comment-page-1/#comment-47457
Mon, 24 Jun 2013 19:25:58 +0000http://blogs.reuters.com/felix-salmon/?p=22141#comment-47457Whenever stimulus is taken away people will say it is bad timing because it always causes pain and that pain is the thing they used to justify their argument that it was bad timing.
]]>By: TFFhttp://blogs.reuters.com/felix-salmon/2013/06/24/the-feds-bad-timing/comment-page-1/#comment-47456
Mon, 24 Jun 2013 17:07:43 +0000http://blogs.reuters.com/felix-salmon/?p=22141#comment-47456Bad timing — the Fed waited far too long to pop the bubble. The market action in May was obviously unhealthy, layering large gains on top of already inflated valuations. If they had taken cautious steps a couple months earlier, they could have avoided both the mini-bubble, and its reversal, and the slew of overreaction that has accompanied it.

The economy could perhaps use some targeted fiscal stimulus (higher taxes on the wealthy, higher spending on jobs/projects), but it doesn’t need any more QE. Withdrawal from that drug is surely painful, but it had to happen eventually. Better if it had happened BEFORE the markets drove up 20% in half a year on a weak economy and stagnant revenues.

Earnings have been increasing, modestly, but that is largely being driven by capital restructuring (borrow and buyback) and by cost-cutting. Neither is a sustainable replacement for top-line growth.